1. Field of the Invention
The invention relates to electronic systems in support of commercial transactions, and, more particularly, to systems allowing electronic transfer of funds between parties.
2. Description of the Related Art
Many developments have occurred to allow commercial transactions to be negotiated and memorialized in electronic form. Various hallmarks of this evolution have included:                word processing software, allowing agreements to be drafted and edited using electronic tools and electronic formatting;        email and electronic communication in general, allowing parties and their legal representatives to negotiate terms of agreements and send drafts back and forth, even across time zones and at locations remote from each other; and        contract management software and databases, allowing parties to keep track of the terms of the agreements that they have entered into.        
With this technological evolution, there has also been a legal evolution. Today, in many jurisdictions, electronic signatures are recognized and have effect equivalent to paper signatures. Some legal agreements must be “registered” with government authorities such as real estate title documents. Electronic registration has become available in some jurisdictions. For instance, Teranet's e-Reg™ system in Ontario, Canada, provides an electronic land registration system in concert with the government land title authorities in that province.
In spite of these advances in converting aspects of commercial negotiation and agreements to electronic form, an area remains that is largely unconverted to electronic form—payment of closing funds for a commercial transaction.
Even deals that have been negotiated and memorialized electronically are frequently still “closed” using a variation of the age-old ritual of the face-to-face “closing” meeting, at which paper documents may be signed, and some physical object symbolic of the asset is exchanged physically for a paper cheque. The physical object may be a key (in the case of a real estate transaction), a share certificate, a title document, or some other symbolic totem. Paper cheques for large value transactions are usually in the form of certified cheques or bank drafts.
While attempts have been made to convert aspects of the “closing” to electronic form, these have largely consisted of systems for tracking lists of closing items, systems for electronically “managing” closing documents, or systems for electronically generating closing instructions for the various parties. No satisfactory attempt has been made to convert the funds transfer aspect of the closing process to electronic form.
There are several reasons that the funds transfer aspect has remained paper based:                criticality of the timing aspect of the presentation of funds (which may be contingent on the quid pro quo exchange for the asset);        need for an irrevocable form of tender demonstrating to the seller (or other payee) that the funds being presented are “good” and, once the system is instructed to transact, that the funds are not revocable at the insistence of the buyer or reversible by the financial institution;        perception that cheques are a secure form of payment as at least one signature is required.        
Wire payments and other forms of electronic payment are known but still considered “exotic” to many people. Also, there are aspects of existing electronic payment mechanisms that make these methods either unreliable or unsuitable for closing funds in most commercial transactions.
First, the timing of electronic payments cannot be controlled by the parties. Timing is usually only within the control of the financial institution settling the proceeds. Thus, there is no “finality” in the exchange as among the parties, nor is there predictability as to when the funds component of the exchange will be “final”. This makes it virtually impossible to coordinate the seller's actual receipt of the funds with the buyer's taking possession and title of the item being sold, which are typically transferred as part of the act of exchange at the closing of the transaction.
Timing of existing electronic funds transfer has several variables. The authorization of the payment may be dependent on banking hours. The receipt of the funds is dependent on one or more banks' abilities to process the payment. Receipt could be earlier than the scheduled closing (placing the buyer at risk) or later than the scheduled closing (which is frustrating for both the buyer and seller, and may hold up, or unravel the closing altogether). While processing is occurring, the parties have no way of knowing how close the funds are to being delivered, increasing the perception of loss of control. These processing headaches are compounded where there are multiple payees of a deal, all expecting payment at a prearranged time (which may have a tolerance of variation of minutes or hours, rather than the multiple days it could take to get bank payment or until the bank payment is no longer revocable).
Second, the known forms of electronic payment (which have various levels of security) may be expensive to use, or difficult to access.
Third, payments may be revocable at different stages. This leaves open the possibility that a deal will fall through because the buyer or the buyer's bank stopped payment at a critical time, due to a failure of the paying financial institution or even days later based on banking rules. This is in addition to the risk that the funds may be “good” but simply not available at the closing time, which may occur for instance, in chain deals where the buyer from one deal is also the seller from another deal (very common in real estate transactions especially). Disadvantages of the various forms of electronic payments as closing funds are further elaborated in Alison R. Manzer, “Transaction Closing Process Using the Canadian Large Value Transfer System” Federated Press; Corporate Financing; Volume XI, No. 3, 2004, pages 702 to 712.
It is needed to provide a closing funds management system, in which an electronic method allows parties to manage a timed and irrevocable transfer of closing funds within a closed community of authenticated participants using an electronic interface accessible over a distributed network.